Real-life financial mistakes made by young adults (and how you can help teenagers avoid repeating them)
Thursday, January 22, 2015
We learn from our mistakes, so the theory goes - but when it comes to money, learning from other people's errors can be a whole lot better for your own financial health.
Nearly three quarters of twenty-somethings admitted to making financial mistakes they now regret, in research conducted by the Money Advice Service (MAS)*.
Money mistakes are clearly all too common, especially in our first few years of financial independence, so what's the best way to help other young people avoid making the same mistakes?
Helpful advice from the right source
The research found that a quarter of 16-21 year olds were particularly receptive to adults that were just slightly older than themselves - those who could talk about the regrets they have from their own recent experience while they are still dealing with the consequences.
The knowledge and experience of those a little older can be a more realistic and comfortable conversation for this age group, and a good alternative to parents.
That's not to say that parents and other adult mentors don't have an important role to play - they do. Kirsty Bowman-Vaughan, Young People Policy Manager at MAS, says: "Parents should also speak to their children about the dangers of unmanageable debt - this is because the attitudes we form towards money in our earlier years tends to impact habits for the rest of our lives."
Common culprits: the mistakes young adults make
While money-related mistakes can take many forms, the survey revealed that young adults are especially prone to:
Creating their own credit crunch
When you first get access to credit at age 18, it can be very appealing - but even a small splurge each month can quickly turn into spiralling debt if you can't pay it off. More than a fifth of those surveyed confessed to having spent too much on their credit cards
Indulging champagne taste on a beer budget
Lavish holidays, cars and swanky flats can feel like must-haves when starting out in adult life, and many of those who took part in the survey had fallen into the trap of spending more than they could afford.
The pleasure of spending may initially compensate for the pain of being skint, but falling into debt as a result of over-stretching yourself financially can have long-lasting effects.
The survey found that nearly half of those who made money mistakes felt depressed as a result and a quarter said it affected their relationships with friends and family.
How to avoid these mistakes
Here are a few simple strategies that can help young adults avoid making a mistake that could affect them for years.
See our budget blog for a back-to-basics guide on how to work out what you can afford to spend and stick to it.
Keep an eye on your bank account
Check your balance regularly to make sure everything's in order. This can help you spot an unexpected payment and avoid having to dip into a potentially expensive overdraft.
The best way to manage credit card borrowing is to pay it off in full every month. While it's crucial to make at least the minimum monthly repayment, try, if at all possible, to pay more than this as it will help you build up a positive payment history. Only paying the minimum monthly repayment means the debt could be with you for years.
As bills and expenses have an unnerving habit of cropping up unexpectedly, it's sensible to put aside some savings every month to create a safety net. It's all about thinking and planning ahead so that you are ready if anything unexpected requires extra money - being proactive rather than reactive.
For straightforward tips on how to save successfully, take a look at our infographic on successful saving.
Financial mistakes and credit ratings
27% of those surveyed said their spending habits left them with a poor credit rating. One slip-up, such as a late bill payment, can stay on your credit record for six years and seriously affect your ability to borrow money in the future**.
If you've made financial mistakes in the past (and even if you haven't), it's worth checking your credit rating. There are three main credit reference agencies - Experian, Equifax and Callcredit - Experian and Equifax offer a free 30-day trial and Callcredit offers free reports for life.
If you do find a mistake, you can either raise it with the organisation, such as the bank or lender, that registered the data in the first place, or you can contact the credit reference agency about it to have the matter looked into.
This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.
*MAS - It's time to talk: young people and money regrets' report
**Experian - Common Credit Myths
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net